Devaluation Of The Currency

Every country has different monetary policies that are different than the other country’s policies. They can have a semi-fixed exchange rate or a fixed exchange rate. Also, these terms are often misunderstood with depreciation in contrast to re-evaluation.

Thus, in other words, a currency is called devalued when it loses the relative value with other currencies in the foreign market. Also, it can be said that the devaluation of the currency is a result of its monetary policy.

Objectives of Devaluation of the Currency

• To encourage the flow of capital into the country from outside i.e foreign countries.
• It is done to improve the balance of payment position due to the reduced imports and increase in exports.
• To increase the competitiveness of the services and goods exported outside the country.

The government that issues the currency decides to devalue the currency. Also, unlike the depreciation, this one is not the result of any nongovernmental activities. Also, the other reason is a country devalues it’s the currency to combat the imbalance in trade.

Thus, devaluation reduces the cost of the country’s exports. Also, it provides them with a more competitive market and this, in turn, increases the cost of imports. So, domestic consumers are likely to purchase them and thus it further strengthens the domestic business.

As imports decrease and exports increase, a favors a balance of payment towards the shrinking trade deficits. Thus, a country devalues it’s currency so that it can reduce the deficit because it increases the demand for cheaper exports.